U.S. States' Sales-Tax Holidays for School Shopping Derided as `Gimmicks'

By Esme E. Deprez -
Jul 26, 2010

Illinois, Florida and Maryland will
offer sales-tax holidays for back-to-school shopping this year,
bringing the number of states doing so to 18, even as officials
cope with record budget deficits.

The Tax Foundation said in a report today that states
implementing tax holidays in 2010 may reach a record-high of 19
if Massachusetts approves a proposed two-day exemption in August
for merchandise costing less than $2,500. Sixteen states had
sales-tax holidays last year and 17 offered them in 2008, the
foundation said.

The tax moratoriums don’t prop up economic growth or
significantly boost consumption, according to the Washington-
based research group. Instead, they alter the timing of
purchases.

“Sales-tax holidays are gimmicks designed to win political
points for lawmakers,” Mark Robyn, who co-wrote the report with
Joseph Henchman and Micah Cohen, said in a statement. “If
lawmakers want to cut taxes, they should do so in a way that
benefits everyone, no matter what they purchase or when they
purchase it. Unfortunately, sales-tax holidays only distract from
genuine, permanent tax relief.”

State budget deficits will rise to a record $140 billion in
fiscal 2011, which for most states began July 1, according to a
June report from the Center on Budget and Policy Priorities, a
Washington-based research group.

Georgia Scraps Plan

Georgia dropped its holiday this year, citing a $2 billion
deficit, according to the Tax Foundation report. The state had
offered a sales-tax holiday for school supplies, energy-
efficient products and water-efficient merchandise.

“Taxes should raise revenue, not micromanage a complex
economy by picking winners and losers in the market,” Henchman
said in the statement.

Illinois Governor Patrick Quinn signed legislation July 11
that waives the 5 percent state portion of sales taxes collected
on school supplies such as paper, pens and pencils and clothing
costing less than $100 per item from Aug. 6 to Aug. 15. The
holiday doesn’t affect local government sales taxes.

“Back-to-school shopping can be expensive and difficult
for families that are already struggling to make ends meet,”
Quinn said in a statement.

‘Worst Fiscal Position’

Illinois’ tax holiday comes as the fifth-most populous
state ended fiscal 2010 in “the worst fiscal position in its
history” as its backlog of unpaid bills and fund transfers rose
to $4.7 billion from $2.8 billion a year earlier, State
Comptroller Dan Hynes said in a quarterly report. Illinois
shares an A1 debt rating from Moody’s Investors Service with
California, the lowest among U.S. states.

“We don’t know what the budgetary impact will be,” Susan
Hofer, a spokeswoman for the Illinois Department of Revenue,
said in a telephone interview today. “We’ll analyze the results
when the holiday is over.”

In Massachusetts, the House approved the tax holiday, and
the legislation now awaits action in the Senate.

“We hope that with a tax-free weekend, we can offer some
relief, while giving our retail stores a little boost,” state
Representative Charles A. Murphy said in an e-mailed statement.
“The sales-tax holiday is one part of a larger effort by the
House of Representatives to encourage spending and stimulate the
economy in Massachusetts”.

The nonpartisan Tax Foundation, founded in 1937, promotes
Tax Freedom Day, which it says marks the day Americans have
earned enough money to pay the year’s federal, state and local
tax obligations. This year, the day fell on April 9, according
to the Foundation.